● Manufacturing PMI rose to 51.6 in April (Mar: 49.6), a four-month high

- Manufacturing activity returned to an expansion at the start of the second quarter of 2022, mainly due to higher demand. This signalled a continued recovery in the manufacturing sector driven by various policy support and the transition to an endemic phase amid heightened external pressures.

● New orders increase sharply in April, but output remained subdued

- New orders recorded the sharpest rise since April 2014 due to improved client confidence. Nonetheless, output remained subdued and was scaled back for the fourth straight month largely due to ongoing material and labour shortages, as well as

delivery delays.

● Cost pressure persisted amid higher raw material and transportation prices

- Input cost increased for the 23rd straight month with firms continuing to partially pass higher costs onto clients.

● Manufacturers remained optimistic about future output

- The optimism was driven by hopes that demand conditions would improve as the pandemic subside. Nonetheless, the degree of optimism dipped to an eight-month low due to concerns that rising prices and ongoing material shortages could impede production levels.

- Meanwhile, the employment level fell for the fourth straight month in April due to difficulty obtaining foreign workers permit amid ongoing border restrictions.

● Manufacturing activity expanded among major economies

- US (59.2; Mar: 58.8): manufacturing PMI accelerated to the highest level since September 2021, fueled by expansion in production and inventories as well as robust demand.

- Japan (53.5; Mar: 54.1): manufacturing expanded at a slower rate due to increase delivery delays and material shortages, subsequently weighed on demand and output.

● Recovery to continue amid heightened downside risks

- Manufacturing activity is expected to remain on a recovery path mainly back by borders reopening and the pent up demand bolstered by various policy support and higher vaccination rate. Nonetheless, our growth projection remain subjected to several downside risks attributable to global supply chain disruptions brought by the ongoing China's zero-Covid policy and Russia-Ukraine crisis. However, the adverse effect is expected to be limited given Malaysia's export diversification and robust demand from key trading partners.

- Against this backdrop, we maintain 1Q22 GDP growth estimate at 5.7% (4Q21: 3.6%), bringing the overall 2022 growth at 5.0% - 5.5% (2021: 3.1%).

Source: Kenanga Research - 6 May 2022